In most years, November and December are really busy as we prepare for holiday travel, end of year parties and family celebrations. This year may feel disorienting since the holidays may actually be a time where we slow down. However, perhaps the COVID silver lining is 2020 and 2021 may be the years we actually make time for the financial to-dos and end of year accounting we always intend to do.
Here are 5 things you can do in less than an hour to be more financially free.
1. Up your 401K contribution if you’re not already contributing the max. You can contribute $19,500 to a 401K in 2020. If you aren’t already on track to max out this account, can you raise your 401K contributions 2-3% before the end of the year? You likely won’t feel it and if your expenses are lower right now because of cancelled holiday travel, put those savings towards future you.
2. Calculate how much you saved this year as a percentage of your income. Most financial advisors recommend saving 20% for future you. This can be retirement savings in a 401K or IRA or extra payments towards debt like student loans or saving for college for your kids. Add up all of your contributions to retirement accounts (check your paystub for your 401K contributions), savings or brokerage accounts. What savings rate are you on track for in 2020? If you won’t hit 20% this year, what’s driving that? High rent or housing expenses? Child care?
Note: if you wait to receive your W2 in mid-January, you should see your total income from your job and any 401K contributions in one place. As noted above, you can also include extra payments to debt like student loans or savings for college in this savings rate. However, make sure you’re saving at LEAST 10% for your retirement. There are scholarships for college but not for your cholesterol meds.
3. Calculate your net worth. How did it grow or change from last year? If you lost your job this year or took a pay cut do to COVID you might have had a decrease in earnings but how did it affect your total net worth? Did you pay off student debt while slowly growing your 401K savings? Did you go into debt to cover additional childcare costs? How did this year go and what do you want to change next year? Add up all the money in your accounts including 401Ks, brokerage accounts, IRAs, and savings and checking accounts. Include any home equity (your home value minus anything still owed on the mortgage). Now that you have your assets, subtract your debt. What’s your number? What wins can you celebrate?
4. How much did you give this year? We all intend to be generous with our resources. Right now in these tough times with service sector jobs still down and demand at food pantries spiking, giving is even more important. How much did you give this year? What is it as a percentage of your post-tax income? Did you achieve your goals or do you need to dig deeper next year?
5. What progress if any did you make on achieving your financial goals? Do you want to buy a house in 2-3 years? Build up a 1-year emergency fund? Save up $10K for IVF? If you don’t have financial goals yet, you should set them. Try to go past saying, “I want to buy a house in 5 years” to “I want to buy a $500,000 house with a 20% down payment in 5 years which means I need to save $1,667 / month.”
What are your end of year processes to track how you’re doing with money? What do you want to do differently in 2021?
If you want help creating processes and digging in on these numbers, sign up for my 10-week money boot camp which includes worksheets to help you set goals, get on top of your retirement, and figure out how and when to buy a house. Use the code BLACKFRIDAYMONEY for $51 off through 12/2/2020.